Aug. 5 (Bloomberg) -- One of America's three biggest automakers is almost certain to default within the next five years, according to UniCredit SpA analysis of the market for credit-default swaps.

Contracts to insure $10 million of General Motors Corp. debt cost a record $4.7 million upfront plus $500,000 a year, indicating an 84 percent chance of default, while Ford Motor Co. has at least a 75 percent risk, according to UniCredit data. Combined with Chrysler LLC, the probability that one of the three will be unable to fund its business is more than 95 percent.

GM, the world's largest automaker, reported the third- biggest loss in its 100-year history last week, while Ford said it's shutting down two plants making its best-selling F150 pickup as U.S. auto sales tumbled 13 percent in July. Chrysler's failure to get all of the $30 billion in renewed funding it sought this week may restrict its ability to finance sales to customers and dealers.

``There might be a default at any time,'' said Jochen Felsenheimer, the Munich-based head of credit strategy at UniCredit, Europe's fourth-biggest bank. ``The costs imply there is close to 100 percent probability that one of the big three will file for Chapter 11 bankruptcy.''

Debt Protection

The cost of credit-default swaps has risen so high that sellers of protection on all three companies would profit even if two of the automakers collapsed, Felsenheimer said, given the combined price of $18 million to insure $30 million of debt for the standard five years and an assumed recovery rate of at least 25 percent.

``I would never ever buy into one of these names because they're all ugly,'' Felsenheimer said. ``But I would like to buy into the industry as whole. The U.S. will never let all three go bust.''

Credit-default swaps, contracts conceived to protect debt holders against default, pay the buyer face value in exchange for the underlying securities or the cash equivalent should a company fail to adhere to its borrowing agreements. An increase indicates deterioration in the perception of credit quality; a decline, the opposite.

Contracts on Dearborn, Michigan-based Ford, the second- biggest automaker, cost $3.9 million in advance and $500,000 a year. Credit-default swaps on Auburn Hills, Michigan-based Chrysler loans are $1.9 million upfront and the annual $500,000 charge, UniCredit prices show.

`With Macro Gods'

The contracts show the risk of Ford defaulting is similar to Philadelphia-based Radian Group Inc., the third-largest U.S. mortgage insurer that's lost 95 percent of its value in the past 12 months. Radian credit-default swaps cost $3.6 million upfront and $500,000 a year, CMA prices show.

GM spokeswoman Renee Rashid-Merem in Detroit today referred to comments made by Chief Executive Officer Rick Wagoner in a Bloomberg television interview last week when he said the automaker has enough liquidity to get through the end of next year, when a new low-cost labor agreement and a cut in retiree health-care costs take effect.

Ford spokesman Mark Truby and Chrysler spokeswoman Shawn Morgan declined immediate comment.

The companies have a ``huge problem'' if the economy doesn't recover next year, Jim Reid, a credit strategist at Deutsche Bank AG in London, wrote in a report this week. ``Survival in their current form is probably out of their hands and with the macro gods,'' he wrote.

CDO Writedowns

General Motors has $16 billion of bonds outstanding and owns 49 percent of lending arm GMAC LLC, which owes bondholders $56 billion, Bloomberg data show. Ford has $63 billion of bonds.

A default by one of the automakers would trigger writedowns and losses in the $1.2 trillion market for collateralized debt obligations that pool derivatives linked to corporate debt, Felsenheimer said. Credit-default swaps on GM and Ford were included in more than 80 percent of CDOs created before they lost their investment-grade debt rankings in 2005, according to data compiled by Standard & Poor's.

CDOs are securities that repackage pools of bonds, loans and credit-default swaps and divide their cash flow into notes of varying risk and returns that are sold to investors. CDOs backed by mortgages caused most of the $52 billion of losses and writedowns at Merrill Lynch & Co. and contributed to more than $482 billion at financial firms worldwide.

Need Capital

Banks and automakers are included in most CDOs of corporate credit-default swaps, and losses may force investors to sell the securities, said Felsenheimer, who forecast on Aug. 1 last year that the collapse of the subprime mortgage market would infect other credit markets.

``For both there is no easy way out of the current mess,'' he said. ``It is becoming more and more obvious that we will feel the effects of the crisis for several more quarters rather than months.''

GM, Ford and Chrysler are seeking as much as $40 billion in low-cost loans from the U.S. over the next two to three years, the Detroit Free Press reported today, citing people familiar with the matter. The chief executive officers of the three companies agreed their biggest need is access to capital to ensure they can retool to make fuel-efficient vehicles, the Free Press said.

To contact the reporter on this story: Abigail Moses in London Amoses5@bloomberg.net

Last Updated: August 5, 2008 11:45 EDT